Wednesday, September 23, 2009

Binge Years Over, Make Do With Modest Living

Binge Years Over, Make Do With Modest Living
Frugality is entrenched in Americans' mentality right now; for how long... I do not know but I hope it last, as living well within our means is essential in a sound financial plan.

Ben Bernanke believes the recession is most likely over. To the many Americans who remain unemployed, that is scant consolation. The Fed can pull the wool over our eyes that economic outlook has improved but I am not convinced that the binge years will return.

The financial crisis has ravaged the US Dollar and tarnished the credit worthiness of the US Government. Hence, I have little confidence in government pensions and social safety net. It is best if we devise our own retirement savings plans.

Nevertheless, retirement planning is going to be more challenging. Frivolous, uncontrolled spending must be curtailed. Even if you have a steady job now and earn a reasonable income, it is prudent to adjust your financial goals and start living modestly. By that, I mean shunning materialism and taking pleasure from simple things in life.

Instead of living in a mansion, what is wrong with staying in a 1000 sq ft apartment? When I was little, I remembered cooping up at a relative's house with my parents and the kids sleep two or more to a room. There were no fancy baby clothes or shoes but only drappy hand-me-downs.

That didn't make my childhood any less happy. I am not tempted by material goods because my past makes me appreciative of the fact that earning money is not easy. Sometimes, I wonder why people feel the need to buy many pairs of shoes, ties, or clothes - only to wear it once or twice (sometimes not even opening up the box at all).

That is not the way to spend money, especially when you don't have a million dollars in the bank. All the money is actually coming from credit cards, home equity, etc.

If you are guilty of reckless spending and are now crushed under the massive weight of debts, it is no use beating yourself silly.

Review your expenses, savings, income and the amount of money you need in the future. Figure out what it takes to live modestly for a month. You’ll need to cover your regular bills, such as, mortgage/rent, utilities, transportation, food, clothes, etc.

Once you have a figure for your expenses, say $500, try making do with $300 or $400 instead. Take that as a challenge for modest living. Even if you don't succeed on the first try, at least you know where you have failed and can improve on it next month.

Living modestly usually involve battling impulse buying and various motivations to spend: advertising, friends, etc. It often means taking a little more time to find what you really need, and not what you desire. And you have to be content that what you already have is good enough.

If you do away with Starbucks coffee, downsizing your home and holding off new purchases (clothes, gadgets, shoes, etc.) until your stuff are worn out, that is a lot of money you can save every year. The savings from living modestly can be placed in a Roth IRA, bonds or equities.

Keep your sense of balance and sleep tight at night by living modestly today.